Asia’s slowing economies and oversupply weigh on oil markets

SINGAPORE – Oil prices remained weak on Tuesday as the global economic outlook darkened further and cooperation between oil producing countries to curb oversupply looked unlikely.

In Japan, the economy shrank an annualised 1.2 percent in April-June despite ongoing government and central bank measures to support growth.

China’s crude oil imports fell 13.4 percent in August to 26.59 million tonnes (6.29 million barrels per day) from the previous month, although underlying demand remains strong.

Igor Sechin, chief executive of Russian oil-major Rosneft said during the Financial Times’ Commodity Retreat in Singapore this week that Asia’s slowdown “has a controllable character” due to a firming Chinese real-estate market, while unlike during the 1997/98 crisis most Asian countries now had significant currency reserves.

Sechin also said that he expected China’s oil demand to continue to rise in the long-term: “In 15 years, according to our estimates, China will consume 850 million tonnes of oil, i.e. 350 million tonnes of oil more than now.”

Yet in the short-term, global oversupply still dominates oil markets.

Morgan Stanley said it expected prices to remain low until a global overhang in production was worked off by the fourth quarter of 2016.

Oil prices have fallen almost 60 percent since June 2014 on a global glut, driven by

U.S. crude was at $44.31 per barrel at 0443 GMT, down $1.74 since Friday’s close, weighed down by the closure of the largest crude distillation unit at Exxon Mobil Corp’s 502,500 barrel-per-day (bpd) Baton Rouge, Louisiana, refinery.

U.S. markets were closed on Monday for a holiday.

Brent futures, unaffected by the refinery closure, added 15 cents to $47.78 barrel, although the global benchmark was still down $1.49 from its opening value on Monday.

Rosneft’s Sechin put a lid on recent speculation that Russia might cooperate with the Organization of the Petroleum Exporting Countries (OPEC) to curb output in support of prices in saying that unlike the Middle East, Russia could not easily cut its output as its oil firms had strong foreign partners with a responsibility to shareholders rather than the government.

OPEC is producing close to records to squeeze out competition, especially from U.S. shale drillers, which have so far weathered the price plunges to keep pumping. -Reuters